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A beginner’s guide to purchasing property in France

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“I would like to thank you and your team for making the whole experienceof purchasing my property in France a pleasure and a remarkably stress free experience. I would certainly use your services again and would not hesitatein recommending you to friends and colleagues in the future ”

S Kelly, Surrey

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Introduction - Buying a property in France 4

Do you need a UK lawyer to help with your purchase in France? 5

+ Notaires + UK lawyers + Notary public + Avocats

Purchase stages 7 PRELIMINARY CONTRACT STAgE

+ Existing property + New “off plan” property + Conditions suspensives (conditions precedent) + Dossier de diagnostics techniques (diagnostic reports)

COMPLETION STAgE

+ The deed of sale + L’état civil and la procuration

How should I buy? Individual or Company? 11

+ En indivision + En tontine + Company + Vente en viager + Leaseback + Auction - vente aux enchères

French inheritance law 14

+ Art.22 of the European Union Succession Regulation (EU) No 650/2012 + Inheritance Tax

French property Wills 16

Costs and expenses 18

Taxes 21

Our service 22

Contents

With a surface of over 640,000km2 and 3427 km2 of coastline washed by three seas, France is more than twice the size of Great Britain, but is home to about the same number of people. A country of infinite variety and character, coupled with an agreeable climate, it’s not surprising that so many people are buying second homes in France or even going to live there permanently.

Buying a property in FranceBuying a property in France doesn’t need to be a stressful experience, provided a purchaser understands and accepts that the legal procedures in France may differ from those with which they’re familiar.

In the following pages, we’ll briefly explain the differences and identify the main pitfalls. This introductory booklet is not, however, intended to be a comprehensive guide. Purchasers should obtain individual advice from a specialist lawyer before embarking upon any transaction.

Introduction

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Do you need a UK lawyer to help with your purchase in France?

Under French law, a transfer deed (acte authentique) must be prepared by a notaire and this profession still has a monopoly in such matters. However, many people consider having the additional security of their own independent legal advisor/lawyer as a necessity rather than an option.

The roles of notaires and UK lawyers vary enormously. Buyers are often told that a notaire deals with all the legalities in France and there is no need to involve another party. While legally accurate, the problem with this argument becomes all too apparent for many purchasers. Often notaires do not see the initial contract until after it has been signed and is binding on both parties; it is then the notaire’s responsibility to enforce it.

What is a notaire?

A notaire is a government official, responsible for receiving all the deeds (actes) and contracts to which parties “wish to confer a seal of authenticity, to assure their date, to hold them in trust and to deliver authentic copies”. The notaire is under the authority of the French Minister of Justice and is appointed by decree. The notaire’s office (étude) depends

geographically on the area in which they live. In principle, the notaire represents the French State rather than the interest of either party in the transaction.

It is the notaire’s duty to ensure and guarantee that the transfer of the property is perfect and that the conditions of the transaction are met. They also guarantee the morality and the validity of contracts and are directly responsible for the deeds they receive and for the money with which they are entrusted. Despite a 44 per cent increase in their numbers since 1980, there are still relatively few notaires in France numbering around 9,500 compared to the 133,300+ solicitors registered in the UK.

Notaires’ professional fees in property transactions are fixed by decree. Notaires are obliged to collect all taxes imposed and to pay them over to the relevant authorities. They are never involved in contentious matters, so if a serious disagreement arises between vendor and purchaser they must refer the parties to separate avocats (litigation lawyers).

Other services include preparing deeds relating to marriage settlements between husband and wife; donations (gifts), Wills,

inheritance, company formation, commercial transactions, property valuations, sale of property, etc.

There is a considerable difference between the way a lawyer would deal with a purchase in England and the way a notaire deals with one in France. French buyers would not expect the notaire to volunteer any unsolicited advice or to update them regularly as the matter progresses. You may therefore hear nothing from the notaire from the date the preliminary contract is given to them until a few days before the proposed completion. This can be problematic because, unless you raise the subjects, in general, they may not automatically explain French inheritance laws, different methods of tenure, complex co-ownership regulations, etc. (though you will be deemed to have knowledge of them even if signed on your behalf by virtue of a power of attorney).

The purchaser always has the right to select a notaire for the transaction, but in practice if you are buying from a French individual or builder they will generally instruct the notaire. There is nothing at all to prevent the English purchaser having a separate notaire to look after

Many UK purchasers of property in France are confused or even distrustful when only one notaire is involved in a transaction, unlike the situation in England where the English lawyer is not permitted to act for both vendor and purchaser.

their interests and this does not generally result in an increase in costs as the two notaires must share the fee between them. Depending on the notaires involved, this may improve the situation or cause delays; the use of a suitably experienced lawyer in this country will generally assist the situation and may be quicker.

UK Lawyers

In contrast, an independently appointed, specialist UK lawyer looks after your personal interests, taking into account both UK and French law. Many differences between the two legal systems, of which the notaire may be understandably unaware, may have serious consequences for a British citizen purchasing in France, if only the French legal perspective is taken. Your UK lawyer can advise and assist in your own language, liaising with the notaire and other professionals in France. You may also have the added protection of a UK law firm’s professional indemnity insurance.

Translations of contracts are sometimes provided but these are often inadequate and sometimes misleading. You are bound by the terms of the French document, not the translated version which has no legal value whatsoever. A detailed explanation of the legal implications from your

lawyer is far more useful. Even a professional translator cannot (and is not employed to) identify missing clauses which should be added for the purchaser’s protection or explain the legal implications of the documents.

UK Public Notaries

The roles of French notaires and that of UK public notaries are very different.

A public notary is a qualified lawyer. Most, but not all, are also solicitors. They must be fully insured and comply with stringent practice rules and rules relating to conduct and discipline.

The practice of a public notary has two significant differences from that of a solicitor. First, their duty is to the transaction as a whole and not just to one of the parties and he may act for both parties to a transaction as long as there is no conflict between them and their duty is to ensure that the transaction they conclude is fair to both sides (similar to a notaire in this respect). Secondly, notaries identify themselves on documents by the use of their individual seal which establishes the authenticity of a document. A notary’s seal will be registered with the Foreign and Commonwealth Office and possibly with foreign embassies and consulates. The seal can

be further authenticated by a process called legalisation.

In England and Wales, notaries’ main duties involve verifying facts, documents and information for use overseas.

In French property transactions or estate matters, they are often required to attest and notarise the signature and execution of a procuration (power of attorney) which will then require legalisation by the Foreign and Commonwealth office.

Avocats

This is a French lawyer who specialises in more contentious issues and also general legal matters outside the remit of a notaire. Their assistance could be required should you have problems where matters become litigious.

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A beginner’s guide to purchasing property in FranceA beginner’s guide to purchasing property in France

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In France there is no single form of preliminary contract used for all sales and contracts may vary greatly in content and appearance.

Before signing any paperwork, the purchaser should ensure that they understand the document offered to them and that it contains all the appropriate clauses for their protection as it is signed at a much earlier stage in the transaction.

We can review the French contract, explain its terms to you and negotiate with the seller’s lawyer to make any necessary amendments or additions for your protection.

Preliminary contract stage

• Existing properties

Contracts for re-sales/existing properties generally fall into three main types: the promesse de vente, the promesse d’achat and the compromis de vente (or vente sous conditions suspensives).

The promesse de vente and the promesse d’achat are similar options; the vendor or the purchaser respectively enters into a commitment to sell or to buy, but the other party is not bound. In the case of a promesse de vente, therefore, the purchaser may be able to withdraw from the transaction

before completion by simply forfeiting their deposit paid on signing a contract.

A compromis de vente on the other hand does bind both parties. There is no universal rule about what happens to the deposit (usually ten per cent or five per cent of the sale price) if a transaction does not proceed; this is governed by the contract. Failure to proceed with the purchase results in loss of the deposit, a claim for damages greater than the deposit or even a court action to force the sale.

All preliminary contracts should contain conditions suspensives (conditions precedent) for the protection of both parties.

• New build “off plan” property

Contracts for the sale of new build “off plan” properties are subject to strict consumer protection laws.

The contracts in use may be called contrats de réservation (reservation contracts) or vente en l’état futur d’achèvement (VEFA - sale in future state of completion). The reservation contract provides for payment of a deposit (up to five per cent), subsequent stage payments and conditions suspensives.

The deed of sale is signed before the construction work is complete, usually once the

foundations have been laid. The purchaser acquires ownership of the land and whatever has been built upon it at the time the deed of sale is signed and they automatically acquire ownership of the rest of the building as the work progresses.

Provision is made for deposits and stage payments to be held in special, designated bank accounts for the protection of the purchaser.

Such contracts and deeds usually contain stipulations regarding time delays in the building programme. Where these are the result of bankruptcy of a contractor or of force majeure, for example, the purchaser would not be entitled to compensation even if handover of the property is delayed by many months.

Pressure to sign a contract, e.g. from a developer’s sales office or estate agent should be resisted. Most reputable builders and estate agents are perfectly prepared to wait while potential purchasers seek independent advice on the contents of a contract.

• Conditions suspensives

Whatever their form, all preliminary contracts should contain conditions suspensives (i.e. conditions precedent or “get out” clauses).

Purchase stagesAs in the UK, the purchase of property in France consists of two stages; the preliminary contract, followed by signature of the acte authentique de vente or deed of sale. Here, however, the similarity ends.

These are special terms or conditions which, if not satisfied, should render the contract null and void and entitle the purchaser to withdraw and to recover any deposit paid, assuming they have fulfilled their contractual obligations. The contract should, for example, be subject to there being no adverse planning restrictions, no third party rights of way or easements which might affect the purchaser’s enjoyment of the property or decrease its value. There should also be no existing mortgages (hypothèques) or charges affecting the property that would not be cleared at completion and no claims upon the property by the local authority or the French State.

French law requires every preliminary contract to be conditional upon the purchaser being granted a loan to purchase the property. Unless the purchaser expressly states in the contract, in their own handwriting, that they do not require a loan and understand the consequences of this.

The mortgage condition will normally include time limits within which the purchaser must apply for and receive their mortgage offer. Should they fail to respect the time limits, the loan condition will be deemed to be satisfied and the purchaser could not subsequently rely upon it to withdraw from the

transaction if for any reason they later find themselves unable to raise the finance to proceed. It is essential to follow the terms of this condition to the letter.

Purchasers need to ensure that all appropriate conditions suspensives to meet their needs are included in the contract before they sign it. It is customary to sign the preliminary contract and pay the deposit before any enquiries are raised and any mortgage advance agreed. This is in sharp contrast to the procedure in England and Wales, where the preliminary contract is only signed after the result of a local authority search has been received and once the purchaser has obtained a mortgage offer.

• Dossier de diagnostics techniques

Annexed to the contract will be a dossier de diagnostics techniques. This is the collective name for the set of obligatory inspection reports which must be provided to protect both the vendor and purchaser.

These tests are increasing regularly in number and are all provided at the vendor’s expense. Those required will vary depending on the region and age of the property. The notaire should ensure that any certificates required are obtained and attached to the contract and deed of sale in due course.

The price stipulated in the contract normally takes account of any financial consequences arising from the condition of the property e.g. with regard to termites, asbestos, lead poisoning, energy performance, gas/electricity installation and major natural and technological risks.

comPletion stage

The deed of sale

Whether the transaction concerns an existing property or part of a new development, the final / completion stage is the signature of the acte authentique de vente (deed of sale) which is drawn up by a notaire.

Whether the preliminary contract was drawn up by the estate agent or by the notaire, it is the notaire’s duty to carry out the various basic enquiries with the local authorities and ensure that the conditions precedent have been satisfied and diagnostics obtained. Once satisfied that there is nothing of significance affecting the property they call upon the parties to attend at their office to sign the deed of sale.

French law requires that a deed, to be authentic, must be executed in the presence of a notaire and in France. In principle, it is the purchaser who has the right to choose the notaire who deals with the transaction.

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In the case of new developments a single notaire appointed by the developer usually deals with all sales. A non-French purchaser may find that the estate agent or even the vendor will nominate a notaire. If so, the purchaser may still appoint a notaire of their choice at no additional cost; the two notaires sharing the “notaire’s fees”. In practice, for purchases of older property, many people who appoint independent specialist legal advisors with expertise in Anglo/French property matters may not feel the need to involve a second notaire.

A period of two-to-three months generally elapses between signature of the preliminary contract and signature of the deed of sale, for existing property sales. For off plan purchases, it could be 12 months.

In the case of properties forming part of a multiple development, the notaire will also draw up règlements de co-propriété (co-ownership rules) and provide a draft copy along with with the draft deed of sale. These are often lengthy and complicated documents and the deed of sale will contain a declaration that the buyer has a copy and understands its provisions.

It is not general practice for most French notaires to keep the parties constantly informed

as to progress, nor do they automatically advise upon or explain the contents of the preliminary contract, deed of sale or co-ownership regulations. Another reason why it is considered important for buyers to take independent legal advice from suitably experienced lawyers before any such document is signed if they wish to be fully informed. A translation provided by the estate agent has no legal value.

L’état civil

The French notaire will require evidence of the purchaser’s civil and marital status (état civil). You may be asked for details of your marital regime and carnet or livret de famille. This is a (French) family history booklet, containing details of births, marriages, separation or divorce and deaths within the family but an equivalent does not exist in the UK. To supply the relevant information, it will be necessary for non-French buyers to produce copies of birth certificates, marriage certificates, divorce decree (if appropriate) and passports. Sometimes it is essential to supply original duplicates issued by the Registrar within the preceding three months.

La procuration

Although a deed of sale must be signed in the presence of a notaire in France, it is possible to achieve this by means of a power of attorney (procuration) signed in the UK in the presence of a notary public (notarised) and legalised by the Foreign and Commonwealth Office.

If inconvenient or impossible for them to travel to France purely for the signature of the deed at the required time, this is a popular choice. A power of attorney appoints a third party (usually a member of the notaire’s staff) to sign the deed on behalf of the purchaser in the notaire’s office at a time convenient to all parties.

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How should I buy? Individual or Company?

Purchasers of property in France are free to decide how to structure their ownership e.g. whether the purchase should be in the name of an individual, a number of individuals or even a French company e.g. a société civile immobilière (SCI). Traditionally, French inheritance laws (see below) have often influenced a buyer’s decision.

The most common ways to acquire property in France are:

• En indivision - similar to a UK tenancy in common

Indivision is the most common method of property tenure in France and how most notaires will automatically draft a deed of sale unless otherwise instructed. The co-owners (indivisaires) own the property jointly but on the death of one co-owner it passes to their heirs in accordance with the French succession rules of the réserve and/or the provisions of any legal Will that may exist. Consequently, the surviving indivisaire may ultimately own the property with the deceased’s children, surviving parents or other heirs of a more distant degree e.g. friends of the deceased. If one indivisaire wishes to dispose of the property and another does not, the party wishing to sell can take legal steps to try to force the sale of the property.

There are certain measures which may be taken to improve such situations e.g. entering into a convention d’indivision (but this can only be valid for five years before it must be renewed) or leaving the surviving owner the usufruit or life interest in the property.

• En tontine - similar to UK joint tenancy

This is a method whereby two or more people (tontiniers) buy a property together and on the death of one owner, the deceased’s share will pass to the survivor(s). This process will continue until there is only one surviving owner. While sometimes appropriate, this method is often regarded as unsatisfactory and restrictive; no changes can be made in the arrangements without the consent of everyone involved, e.g. a sale cannot be forced. The tontine arrangement can only be included in the deed of sale prior to signature. It may be cancelled if all the tontiniers are in agreement but could not be reinstated at a later date.

Whilst there may be inheritance tax (IHT) consequences for certain classes of heirs, for married couples or those with a (French or UK) civil partnership it would allow the property to pass to the survivor absolutely without liability to French IHT.

• Company purchase

Société Civile Immobilière (SCI) The use of such a company has long had considerable advantages in certain circumstances e.g.

• For tax purposes in France: it is transparent so any capital gain on sale is payable by the members of the SCI who are each liable to a proportion of the tax.

• The SCI is a separate legal entity from its members and the property is owned by the company, not the members personally. Only an internal transfer of shares would take place with the consequent taxes and fees falling due on the departure of a member from the group or the arrival of a new member without any

change in the title to the property.

• The main reason some UK resident purchasers have opted for such a structure in the past is so that the movable property shares (parts) could devolve as part of their English estate rather than under French law. (French IHT remains payable).

English limited company This is possible but costs including potentially punitive capital gains tax (plus value) on a re-sale, should be carefully considered before acquiring property in France in this way. A three per cent annual tax may be payable in France on company-owned realty; where the appropriate steps are taken it may be possible to avoid this.

• Vente en viager

A less well-known form of purchase, this is similar to a reversionary annuity. A typical scenario could involve an elderly person, with no children upon whom to rely for support, selling his property on an instalment basis. Possession may or may not be given to the purchaser on the date of completion. The seller could remain in residence. On the date the deed of sale is signed, the purchaser pays a relatively small proportion of the purchase price. The deed does not define a fixed, final purchase

price but provides for a regular (e.g. monthly or quarterly) sum to be paid by the purchaser to the vendor throughout his lifetime. This provides the vendor with an income for life. Whether or not the purchaser obtains a bargain depends upon how long the vendor lives!

• Leaseback

The concept of sale and leaseback was launched by the French government in the 80s to boost tourism and create employment in ski and seaside resorts. The purchaser is entitled to buy a freehold apartment usually at a discounted price (in principle a French VAT refund) on condition that they immediately grant a (commercial) lease of the apartment back to the developer or leaseback company for a minimum of nine to 11 years. The lease can be renewed to run for a maximum of 20 years. To qualify as a leaseback, the properties must be furnished and meet a minimum standard and the lessee must offer certain “parahotel” services. These are usually acquired as off plan (VEFA) purchases but some do change hands as a re-sale.

The lessee/management company also undertakes to pay a rent to the purchaser, find tenants and takes responsibility for certain aspects which would otherwise fall on the owner e.g. they may pay certain

taxes and charges. These can be offered with and without personal use by the owner for a number of specified weeks each year if desired.

Though Taxe sur la Valeur Ajoutée (TVA/French VAT) is currently 20 per cent and the refund incentive attracts many the actual sum refunded is closer to 16.5 per cent.

If sold within 20 years the refunded TVA must be repaid pro rata (unless the commercial lease is continued by the new owner and the tax authorities permit this).

While attractive to many buyers, leaseback schemes can be complicated and can present certain risks to the unaware. Purchasers are advised to obtain detailed and specific legal advice to ensure that they have a good understanding of the commercial lease, its legal and tax consequences.

A number of leaseback companies and/or developments have experienced difficulties in recent times, resulting in problems for owners/lessors. These include non-payment or reduction of rental income, changes in lessee, etc., so it is of paramount importance that buyers enter into an agreement in full knowledge of the risks and consequences it may have.

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• Auction - vente aux enchères

An auction sale may be the result of a bankruptcy, repossession or an attempt to settle the estate of a deceased owner. Very often property can be obtained at a price considerably lower than its market value. As the procedures for such a purchase differ greatly from other methods and from UK auctions, it is essential that the purchaser is fully aware of these as well as all the costs and charges entailed.

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Under French legislation, an individual’s assets on death consist of the reserved portion (réserve légale) and a disposable portion (quotité disponible).

French law provides that certain heirs (réservataires) have automatic rights of inheritance. Where children survive a parent, the French rules of réserve state that the reserved portion must go to the children, regardless of the wishes of the deceased.

On the death of the parent, the children automatically receive a share in his/her estate in the proportions indicated in the table overleaf, leaving a percentage which is freely disposable in accordance with the wishes of the deceased. If no alternative wish is expressed regarding the disposable portion in the deceased’s Will the entire estate would normally be divided between the children and spouse.

Even where a husband and wife buy French property jointly, surviving children may be entitled to share in the estate

on the death of one of the spouses under the French rules of the réserve unless specific steps have been taken. These legal provisions become particularly crucial if the purchase is a joint venture between, say, two or more families or where there are children from previous marriages.

Despite major reforms introduced in August 2007, the restrictions on who can inherit under French law are largely unaffected and children still inherit in priority to a spouse.

There may be steps that can be taken to improve a spouse’s position, including opting for the law of your nationality, where possible.

Art.22 of the European Union Succession Regulation (EU) No 650/2012

French inheritance laws apply to a French resident’s entire estate except for real estate outside

France which could transfer under the lex situs (law of the country where it is located). EU citizens may be able to choose the law of their nationality as the law to govern their succession as a whole as a result of Art.22 of the European Union Succession Regulation (EU) No 650/2012 which came into effect on 17 August 2015.

However, the UK, together with Denmark and Ireland, has opted out of this regulation and it is not entirely clear whether or not, from 17 August 2015, Art. 22 will fully apply to UK residents.

Expert opinions have been divided as to whether the countries which have opted out (and therefore aren’t bound by the Succession Regulation (SR) or subject to its application), will nevertheless fall within its definition of a ‘member state’, permitting (as a matter of European policy) the succession law of those countries to be recognised and enforced throughout the EU. It may remain open to interpretation for now,

French laws of succession provide that where a person dies leaving surviving descendants, they may not freely dispose of their estate in France. Purchasers should therefore seek legal advice before deciding how to proceed with the purchase, as the best method will depend entirely upon the personal and family circumstances of the individual and on provisions for their French real estate in a Will.

French inheritance law

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with any uncertainty only being resolved in due course by decision of the EUCJ (European Courts of Justice).

For those who do wish to have the law of England and Wales apply to their estate, their French property Wills can make provision to cover both possibilities, i.e. where it is deemed to apply at the time of their death and, alternatively, where it is not. It would be advisable for those interested, to take appropriate advice from their UK Wills advisors regarding any possible wider-ranging consequences (e.g. on their worldwide estate) before they do so.

Inheritance tax - droits de succession

While these changes may affect the devolution of an estate, they will not remove any problems relating to French inheritance tax (IHT); this will still be payable in France by the individual heirs, no matter which national law is applied.

Unlike in the UK, where the entire estate is taxed, IHT in France is paid by each individual beneficiary and the tax-free allowances, taxable inheritance and tax rate applicable vary depending on the relationship of the beneficiary to the deceased. Spouses and (French and UK) civil partners now benefit from an exemption from French IHT; however, at the other end of the scale, unrelated heirs pay tax at the punitive rate of 60 per cent.

For those domiciled in the UK, their French property will be included in their UK probate declaration also. A credit should be given for French IHT paid.

Réservataire Réserve (minimum) Quotité Disponible

(Disposable Portion)

1 Child 1/2 1/2

2 Children 2/3 Equally between them 1/3

3+ Children 3/4 Equally between them 1/4

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Even where there has been no express intention to create a trust or no on-going trust, owing to the very widely-drawn French definition of a trust for the purposes of the new French rules, the risk now is that trusts arising on death under a Will or intestacy will be within the scope of these. Simply by virtue of the quirk of English law whereby an estate is vested on death in the executors whilst they administer the estate, rather than directly in the beneficiaries, this could be interpreted as creating a “bare trust” under the new definition and the taxation and reporting obligations could apply.

Consequently, in order to avoid any potential problems, you should consider making a French form of Will which relates solely to your immovable property/real estate in France.

There are two principal types of French Will to consider:

The Testament Olographe (holographic Will) is probably the most common form of Will in France and, amongst other formalities, must be entirely handwritten. There is no legal requirement to register a holographic Will in France but a French language version of the Will can be registered by a notaire in France at the Central Wills Registry (Fichier Central des Dispositions de Dernières Volontés).

A Testament Authentique, a much more formal format, must be drawn up by a French notaire and witnessed by two witnesses in France or by two notaires. These must be registered at the central registry in France and are considerably more expensive so generally less popular in France.

It is essential that you inform your UK Wills solicitors of the existence of any foreign Will (in addition to your UK Will) and keep them up-to-date with any proposed changes in relation to these.

French property Wills

Changes to French law regarding trusts, their taxation and reporting obligations, could have serious consequences for UK owners of French property whether the property is expressly held in a trust or simply dealt with by their UK Will or codicil.

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Taxes

Annual property taxes

The two principal local taxes payable in France are taxe foncière and taxe d’habitation.

Taxe fonciére

This tax is charged to the person who owned the property on the first of January in any given year, though billed towards the end of the year. If the property changes hands in the course of the year it should be paid by both owners on a pro rata basis.

Taxe d’habitation

This tax is payable in full by the occupier of the property in France at 1 January. Also payable annually towards the end of the year, there is no apportionment of the tax between seller and buyer if the property is sold.

Redevance audiovisuelle (television tax)

The redevance is basically a TV licence fee payable by every household with one or more television sets. It also applies to second homes, holiday homes and TVs without aerials used only as a device for viewing videos and DVDs. Notification should be made to the Mairie (Town Hall) when the TV is bought. New or used TVs acquired from a retailer will be declared by the shop.

There may also be other local taxes due e.g. for refuse removal.

Income tax - France and the UK If your property is let you may be liable to pay income tax in the UK and France (impôt sur le revenu). The French tax year follows the calendar year, running from 1 January to 31 December. The corrected déclaration de revenus is due annually on 31 May for the previous calendar year; this is also the deadline date for new arrivals in France to complete and submit a declaration for the first time. If completed online, the deadline is extended into June (dates vary depending on the location in France).

Income generated on a French property must also be declared to the HM Revenue and Customs (HMRC) in the UK and an allowance is granted for any income tax paid on this in France.

Wealth tax

French wealth tax is payable on net assets above €1,310,000 owned at 1 January but of that sum only the first €800,000 is wealth tax-free.

French residents must include all world-wide assets. Residency is defined by French law and is not simply a matter of being present for 183 days.

Non-residents with property in France are only liable for wealth tax on assets physically situated

in France (i.e. not purely financial investments) and the onus is on them to obtain and submit their declaration by the due date.

For those relocating, there is a partial exemption from French wealth tax for most people for five years after moving to France. The exemption only covers assets outside France, however.

There is also a small reduction for those with assets just over the threshold (e.g. €1.3-1.4M) so it’s worth taking appropriate tax advice regarding wealth tax and how to legitimately minimise one’s liability where appropriate.

The deadlines for filing wealth tax returns differ for residents and non-residents.

Bear in mind that trust assets are now included and where Société Civile Immobilière (SCIs) are concerned, the declaration should be based on the current value of the underlying property held by the company and not the basic value of the shares. Loans are also liable to French wealth tax.

Since 2013, there has been a wealth tax cap in operation and the total taxes should not exceed 75 per cent of income but the calculation is complex.


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Penalties

While it may appear that there is a voluntary element in this, it is worth bearing in mind that the tax authorities have sight of all property transactions and will be aware of the price paid for a property. Where they deem that an owner is liable to pay wealth tax, they are entitled to collect arrears.

If you fail to submit (or to correctly complete) a wealth tax declaration, you could find the French tax authorities knocking on your door. They carry out regular controls to determine if wealth tax declarations have been correctly submitted and their interest can be triggered by certain events, e.g. the sale or inheritance of a high-value property.

If challenged, it is unlikely that earlier years would not also be scrutinised and they are able to go back up to ten years.

The penalties for underpayment or non-declaration could include payment of the additional wealth tax correctly due plus interest and penalties (not only ten per cent p.a. but possible additional uplifts of 40 per cent for those deemed to have acted in bad faith or 80 per cent for those acting fraudulently and deliberately hiding assets).

TVA - French Vat

French sales tax of 20 per cent is generally applicable to most goods and services.

Capital Gains Tax (CGT)

This is payable on the sale of land or buildings and is called impôt sur les plus values immobilières. There are certain exemptions:

• The sale of a principal residence/family home where you have been habitually resident up to the time of the sale;

• The sale of a property owned as a second home for 22 years or more.

Relief now applies at a rate of five per cent between six and 21 years of ownership and four per cent in respect of the 22nd year, thereby cancelling the taxable gain after a total of 22 years of ownership. This relief applies to the main CGT rates` of 19 per cent or 33.33 per cent.

Where the capital gain exceeds €50,000, additional tax is payable.

It is also payable on the sale of shares and certain other personal property.

Social charges - Prélèvements Sociaux

For some time non-residents have been liable to pay Prélèvements Sociaux on a property sale at the standard rate of 15.5 per cent. This raised the tax payable by an EU resident, not resident in France, from 19 per cent to 34.5 per cent and for a non-EU non-resident from 33.33 per cent to 48.83 per cent.

The European Court of Justice (ECJ) in Luxembourg has now published a decision of principle in favour of the tax payer that will deprive France from levying social charges on real estate income (rental or capital gains) from a person in a country other

Taxable Assets Euros/€

Tax rate

%

< 800,000 0

800,000- 1,310,000 0.50

1,310,001 - 2,570,000 0.70

2,570,001 - 5,000,000 1.00

5,000,000 - 10,000,000 1.25

> 10,000,000 1.50

From €

To €

Tax rate %

50,001 100,000 2

100,001 150,000 3

150,001 200,000 4

200,001 250,000 5

250,001 6

than the member state to whose social security scheme the person belongs.

This decision could therefore give rise to a wave of refund applications from thousands of non-resident tax-payers who are subject to the social security scheme of another EU country but own real estate in France, and who have already paid the French social charges. Time limits for a tax refund application do apply. For CGT this should be within two years of the tax payment made at completion.

UK CGT

For UK residents, the sale and gain must be declared to the UK Revenue also and is potentially taxable in the UK.

An allowance should be given for the basic CGT paid in France. The social charges were excluded from the charges for which HMRC allowed credit against UK CGT so a refund should not impact on the UK CGT paid.

Inheritance and gift tax

Spouses and French and UK civil partners now benefit from inheritance tax exemption in France but not from gift tax.

Tax-free allowances and inheritance/gift tax rates vary depending on the relationship between the beneficiary and the testator/donor.

A child benefits from the most generous tax-free allowance of €100,000 (reduced from €159,325 in 2012) on any inheritance or gift from a parent. Amounts in excess of that are taxed on a sliding scale at rates of five per cent to 40 per cent. Non-relatives suffer the most punitive rate of 60 per cent and receive the lowest tax-free allowance - only €1,594.

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Costs and expenses


21

Notaire’s fees

In most parts of France, it is usually the purchaser who is solely responsible for the legal costs and expenses incurred in relation to the transfer of property (unless otherwise expressly agreed with the vendor).

Although these are known as frais de notaire (or notaire’s fees), they also include property taxes and stamp duties. For an average purchase of existing property, these could be in the region of between six per cent and eight per cent. An off plan purchase and/or new property fees appear to be lower around three per cent but the buyer will also be paying VAT at the rate of 20 per cent.

agency commission

Since 1988, French estate agents have been permitted to set their own levels of commission. This commission may be payable by the vendor or the purchaser as indicated in the contract so always establish if the purchase price is inclusive or exclusive of these fees. If included, it is possible to amend the contract to list the commission separately to ensure that the purchaser does not have to pay purchase tax (stamp duty) on the amount of the commission.

other professional assistance

Many different fields of professionals may be required in a property transaction e.g. surveyors, banks, financial advisors. At Slater and Gordon, we have established a vast network of contacts over many years, so may be able to help you in locating a suitable professional to assist you.

acres Hectares metres yarDs

2.47 acres 1 hectare (ha) 10,000.00 m2

0.247 acres 1 are (a) 100.00 m2

0.00247 acres 1 centiare (ca) 1.0 m2

1.00 acre 4.046.9 m2 24,840 sq yds

0.50 acre 2.023.5 m2 22,420 sq yds

0.25 acre 1.011.7 m2 21,210 sq yds

0.8361 m2 1 centiare (ca)

1 m2

conVersion table

At Slater and Gordon we can advise upon all aspects of the transaction from preliminary contract through to completion. We can help the potential buyer to avoid the problems which can arise from unsatisfactory contract conditions or the unforeseen consequences of French inheritance law. We liaise with the chosen Notaire in France at every stage of the transaction and aim to ensure that our client does not sign any document without fully understanding its contents.

Our services are not limited to dealing solely with the purchase

of property in France. Many ancillary matters may be dealt with as required, including property sales, transfers on divorce, estate administration, French property Wills, assisting with setting up French property owning companies, French tax and inheritance planning.

Whether you are a private individual buyer or a property developer, we can take the worry out of the transaction.

The information contained in this booklet is believed to be correct at the time of printing. The information provided is a summary of the main provisions

of the law concerning the purchase of property in France, we cannot be held responsible for any errors or omissions. Readers are therefore advised to seek individual advice.

For further information on our services please contact us at the address below:

Slater and Gordon 58 Mosley Street Manchester M2 3HZ

Our service

22


T 0800 916 908F 0161 383 3636E [email protected] slatergordon.co.uk


Primary contactslindsay Kinnealy Principal Lawyer, International Property Telephone: 0800 916 9083

susana lajusticia Senior Associate, International Property Telephone: 0800 916 9083

Email: [email protected]

Email: [email protected]

Slater and gordon have offices nationwide. If you think we could help, visit

Slater and gordon (UK) LLP is authorised and regulated by the Solicitors Regulation Authority.

slatergordon.co.uk


A beginner’s guide to - Slater and Gordon Lawyers UK · 5 A beginner’s guide to purchasing...

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